How to Get Out of Debt Mathematically
The components
A. To learn how to get out of debt, you must have a time objective. You need to estimate how long you are willing to commit to these steps in order to get rid of debt. To do this, take the total amount of your debt and divide them by the number of months you’re willing to devote in resolving this debt problem. For instance you have incurred $100,000 in debt and you wish to eradicate this within two years. By dividing $100,000 by 24 months, you will get $4,167. This means that you should be paying $4,167 per month on your total debt so that by the end of the 24th month, you would have zero debt.
B. Secondly, you need to determine how much you spend on a monthly basis. Because the exact amount is difficult to obtain, it is imperative that you get the closest amount possible. To do this you must gather all your monthly bills together. If you have statements that bill you on a quarter or annual basis, get the monthly equivalent of these bills and include them also. Then take into account your monthly miscellaneous expenses such as gas or transportation and restaurant bills. Add these expenses to all your monthly bills. The grand total provides a rather accurate amount of your total monthly expenses.
C. This is the final step on how to get out of debt. It’s similar to the previous one, but instead of tallying your expenses, you record all cash inflows. This is not limited to your monthly salary. All the money that comes in on a monthly basis must be recorded. These include commissions, accounts receivable, business income, and gifts. If you’re married, also include all your spouse’s sources of income.
Utilizing the numbers
Now that you have all the components tallied, it’s time to find out how indebted you are. Add the numbers you obtained at parts A and B, and subtract them from the figure you have in part C. If your computation arrived at a positive number, then you’re all good. This means you earn more than you spend and owe; indebtedness is not your problem. If a negative number comes up, then you are in severe debt. But don’t fret just yet, because you’re one step closer in wiping out all your debt.
Why it works
The beauty in this computation is that all financial components are already factored in. This means you don’t have to be a mathematical genius to understand and solve your debt issues as everything is already simplified for you. Assuming you’ve done the computation correctly, the negative number you derived at represents the balance that you must pay out on a monthly basis. In other words, that is the exact number you need to pay in order to meet your objective on how to get out of debt within the next 24 months.
Suppose your computations give you a final figure of -$5,000. This means in the next 24 months, you need to earn at least $5,000 more than what you’re currently earning. You can do this in a number of ways including getting a second job, running a small business, or selling items that you no longer need. You can also hit this mark by reducing your expenses instead of increasing your earnings. It doesn’t matter how you do it. What matters is you achieve it, and knowing exactly what to achieve is the best way to start.
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